Chinese Stocks Complete Best Week Since December Before Holidays

  • Energy, materials companies lead gains among industry groups
  • Trading volumes were 28 percent below the 30-day average

Chinese stocks posted their biggest weekly gain this year as liquidity injections by the central bank and a stronger yuan helped stem the worst equity rout among global markets.

The Shanghai Composite Index rose 1 percent this week, the most since the period ended Dec. 25. It slid 0.6 percent to 2,763.49 at the close. Offshore Oil Engineering Co. paced gains among energy companies, while Shandong Gold Mining Co. led advances for materials stocks. The Hang Seng Chinese Enterprises Index added 1 percent, paring this week’s loss to 2.3 percent.

The People’s Bank of China injected 330 billion yuan ($50 billion) into the banking system this week, adding to January’s injection of 2 trillion yuan as policy makers eased a cash shortage before the weeklong lunar new year holidays starting on Feb. 8. The yuan in Hong Kong is set for its fourth weekly gain, the longest streak since October 2014. China relaxed restrictions on foreign funds as policy makers seek an entry to MSCI Inc.’s global stock indexes and bolster the nation’s financial markets after record capital outflows.

“Trading remains light as most retail investors in China are leaving the cities and going to their home towns for the holidays,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. “The new measure announced yesterday is positive to China as it encourages longer-term funds to increase investment.” 

The CSI 300 Index fell 0.7 percent, paring this week’s gain to 0.6 percent, while Hong Kong’s Hang Seng Index rose 0.6 percent, trimming this week’s loss to 2 percent. Trading volumes in Shanghai were 28 percent below the 30-day average before the holiday. Mainland markets will resume trading on Feb. 15.

Buoyed by bullion prices set for the biggest weekly gain in a month, Shandong Gold rallied by the daily 10 percent, propelling commodity producers higher. Offshore Oil surged 6.4 percent, sending a gauge of energy shares to the biggest advance among industry groups.

In Hong Kong, China Pacific Insurance Group Co. and China Life Insurance Co. added at least 2.7 percent, leading financials higher. Bank of Communications Co. Chief Economist Lian Ping said in a Shanghai briefing that PBOC may cut banks’ reserve requirement ratios after the Chinese new year holidays.

Baoshan Iron & Steel Co. rose as much as 2.5 percent before closing up 0.6 percent, leading steel shares higher. As much as 150 million tons of capacity will be shut under a five-year blueprint that’s part of a swathe of supply-side reforms directed by President Xi Jinping.

Easing Rules

The State Administration of Foreign Exchange said fund managers approved under its Qualified Foreign Institutional Investor program will no longer need to apply for quotas, with maximum allocations instead being linked to assets under management and subject to a ceiling of $5 billion. Open-ended funds will also be able to shift money in and out of the nation’s stocks on a daily basis.

The benchmark gauge has slumped 22 percent this year, the world’s worst-performing global index, amid concern that the economy’s slowdown and the yuan’s depreciation will continue to exacerbate capital outflows. Data due Sunday may show China’s foreign exchange reserves declined by a record $118 billion in December to $3.21 trillion, according to the median forecast in a Bloomberg survey.

Traders reduced their bets on stocks purchased with borrowed money for a second day on Thursday, with the outstanding balance of margin debt on the Shanghai stock exchange dropping 0.4 percent to 524.3 billion yuan, the lowest level since Nov. 27, 2014.

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